CPI easing nothing to celebrate

PUBLISHED : Saturday, 15 October, 2011, 12:00am
UPDATED : Saturday, 15 October, 2011, 12:00am

Inflationary pressures eased marginally on the mainland last month, with the consumer price index rising 6.1 per cent year on year, down from 6.2 per cent in August, but the government is not expected to take its foot off the brake just yet.

While most economists forecast inflation would fall further in coming months, they said last month's rate was unlikely to convince Beijing to loosen its tight credit policy for the moment.

The CPI covers a range of goods and services, spanning home rentals, transport, fuel and appliances, but a significant chunk of the latest increase, came from food prices, which surged 13.4 per cent year on year last month.

Non-food prices rose 2.9 per cent, National Bureau of Statistics (NBS) data showed yesterday.

Pork, a staple food, jumped 43.5 per cent. The double-digit growth in food prices pushed the CPI up by 4.05 percentage points, with pork prices alone adding 1.24 percentage points.

While the CPI rise was down from its three-year July high of 6.5 per cent, it was still above 6 per cent for the fourth month in a row.

In the first nine months of this year, CPI rose 5.7 per cent from the same period last year, the NBS said, far outpacing the government's 4 per cent target for the whole year.

Premier Wen Jiabao said fighting price pressures was the government's top priority and the People's Bank of China raised the benchmark interest rate three times this year, and lifted the ceiling on the amount commercial banks must keep in reserve six times.

Most economists said inflation this year would almost certainly be higher than 5 per cent, leaving the authorities limited scope for easing.

Share prices in Hong Kong and on the mainland fell yesterday after the CPI data.

Qu Hongbin, the chief economist with HSBC's Asian Economics Research, expected inflation pressures to continue to slow in coming months as demand continued to soften, in line with slowing credit growth and falling commodity prices.

'That said, the pace of slowdown will be gradual, not least because of the sticky food prices,' Qu said. 'October CPI is likely to be above 5 per cent.'

However, he expected the central bank to keep monetary policy stable and did not expect rates to be lifted or cut soon.

'Even if a renewed global recession were to hit China, it is wrong to expect a U-turn in monetary policy given [the] still elevated inflationary pressures,' he said.

Nomura Economics Research Asia predicted the CPI would ease to 5 per cent by December, mainly because of base effects, but this did not mean that the central bank would ease its stance.

'We maintain our view that the PBOC will keep policy on hold. Inflation pressure remains elevated as headline CPI is still above 6 per cent while the month-on-month rate is not yet falling,' Nomura economists Zhiwei Zhang and Chi Sun said in a research note.

Last month's CPI was up 0.5 per cent from August, higher than the 0.3 per cent month-on-month rise posted in August. Compared with the previous month, food prices rose 1.1 per cent last month, and non-food prices climbed 0.2 per cent.

ANZ Research said last month's reading suggested that inflationary pressures had not abated.

'In our view, China's inflation has become 'sticky', largely due to a large monetary overhang and high inflation expectations,' ANZ economists Liu Ligang and Hao Zhou said in a research note.

'As such, it is too early to call a win on inflation as a rebound in headline inflation is still likely next year even if a severe euro-zone slowdown can be avoided and the US returns to a moderate recovery path,' they said.

However, Yu Song, a China economist with Goldman Sachs, said while the official rhetoric might not change, the announcement of the plan to help small and medium-sized enterprises showed the government was becoming 'less restrictive'.

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